| March 10, 1992 | |
| Registered Plans Division | Financial Industries |
| Stella Kotlar, Director | Division |
| P. Spice | |
| 957-8953 | |
| Attn: R. Grabs | |
| 7-920530 |
24(1)
This is in reply to your memorandum of February 20, 1992, in which you ask for our opinion on two issues respecting amounts held in a temporary reserve account under the terms of the pension plan for the above-noted organization. You enclosed copies of pages 8 and 9 of the pension plan document (the "Plan") and the first two pages of a letter of September 17, 1991, from the lawyers for the Plan, 24(1). We also obtained from 24(1) copies of the full Plan and the draft Plan Memorandum of Agreement (the "Memorandum") between the agent of the employers and the union, which contained some other relevant details.
The two issues are:
1. Determination of the year in which the amounts in the reserve account would be reported as income by the employee.
2. Determination of the nature of the income as either employment income under section 5 or pension income under section 56.
We examined the terms of the Plan and the Memorandum to determine the nature of the income and the rights of the employees to the income. The following is a summary of the relevant terms of both documents.
24(1)
From an analysis of the foregoing, it is our opinion that all employer contributions under Part Two of the Plan become the property of the Plan until a determination is made that an excess contribution has been made. At that point the excess becomes the property of the employee in accordance with the terms of the Plan and the Memorandum.
In answer to the two issues cited above, the amounts are taxable in the hands of the employee in the year the determination is made that they are excess contributions; and the amounts are benefits received out of or under a pension plan and, therefore, are taxable under section 56 of the Income Tax Act.
for DirectorFinancial Industries DivisionRulings DirectorateLegislative and IntergovernmentalAffairs Branch